EFA vs. XLF: What’s The Difference?

The iShares MSCI EAFE ETF (EFA) and the Financial Select Sector SPDR Fund (XLF) are both among the Top 100 ETFs. EFA is a iShares Foreign Large Blend fund and XLF is a SPDR State Street Global Advisors Financial fund. So, what’s the difference between EFA and XLF? And which fund is better?

The expense ratio of EFA is 0.20 percentage points higher than XLF’s (0.32% vs. 0.12%). EFA also has a lower exposure to the financial services sector and a lower standard deviation. Overall, EFA has provided lower returns than XLF over the past ten years.

In this article, we’ll compare EFA vs. XLF. We’ll look at annual returns and industry exposure, as well as at their holdings and risk metrics. Moreover, I’ll also discuss EFA’s and XLF’s performance, fund composition, and portfolio growth and examine how these affect their overall returns.

Summary

EFA XLF
Name iShares MSCI EAFE ETF Financial Select Sector SPDR Fund
Category Foreign Large Blend Financial
Issuer iShares SPDR State Street Global Advisors
AUM 56.77B 40.81B
Avg. Return 6.47% 12.17%
Div. Yield 2.28% 1.57%
Expense Ratio 0.32% 0.12%

The iShares MSCI EAFE ETF (EFA) is a Foreign Large Blend fund that is issued by iShares. It currently has 56.77B total assets under management and has yielded an average annual return of 6.47% over the past 10 years. The fund has a dividend yield of 2.28% with an expense ratio of 0.32%.

The Financial Select Sector SPDR Fund (XLF) is a Financial fund that is issued by SPDR State Street Global Advisors. It currently has 40.81B total assets under management and has yielded an average annual return of 12.17% over the past 10 years. The fund has a dividend yield of 1.57% with an expense ratio of 0.12%.

EFA’s dividend yield is 0.71% higher than that of XLF (2.28% vs. 1.57%). Also, EFA yielded on average 5.70% less per year over the past decade (6.47% vs. 12.17%). The expense ratio of EFA is 0.20 percentage points higher than XLF’s (0.32% vs. 0.12%).

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Fund Composition

Industry Exposure

EFA vs. XLF - Industry Exposure

EFA XLF
Technology 9.68% 0.0%
Industrials 15.01% 0.0%
Energy 3.51% 0.0%
Communication Services 5.68% 0.0%
Utilities 3.35% 0.0%
Healthcare 12.8% 0.0%
Consumer Defensive 10.56% 0.0%
Real Estate 3.01% 0.0%
Financial Services 16.88% 100.0%
Consumer Cyclical 11.62% 0.0%
Basic Materials 7.91% 0.0%

The iShares MSCI EAFE ETF (EFA) has the most exposure to the Financial Services sector at 16.88%. This is followed by Industrials and Healthcare at 15.01% and 12.8% respectively. Utilities (3.35%), Energy (3.51%), and Communication Services (5.68%) only make up 12.54% of the fund’s total assets.

EFA’s mid-section with moderate exposure is comprised of Basic Materials, Technology, Consumer Defensive, Consumer Cyclical, and Healthcare stocks at 7.91%, 9.68%, 10.56%, 11.62%, and 12.8%.

The Financial Select Sector SPDR Fund (XLF) has the most exposure to the Financial Services sector at 100.0%. This is followed by Technology and Industrials at 0.0% and 0.0% respectively. Consumer Cyclical (0.0%), Real Estate (0.0%), and Consumer Defensive (0.0%) only make up 0.00% of the fund’s total assets.

XLF’s mid-section with moderate exposure is comprised of Healthcare, Utilities, Communication Services, Energy, and Industrials stocks at 0.0%, 0.0%, 0.0%, 0.0%, and 0.0%.

EFA is 83.12% less exposed to the Financial Services sector than XLF (16.88% vs 100.0%). EFA’s exposure to Industrials and Healthcare stocks is 15.01% higher and 12.80% higher respectively (15.01% vs. 0.0% and 12.8% vs. 0.0%). In total, Utilities, Energy, and Communication Services also make up 12.54% more of the fund’s holdings compared to XLF (12.54% vs. 0.00%).

Holdings

EFA - Holdings

EFA Holdings Weight
Nestle SA 2.11%
ASML Holding NV 1.69%
Roche Holding AG 1.55%
LVMH Moet Hennessy Louis Vuitton SE 1.28%
Novartis AG 1.19%
Toyota Motor Corp 1.09%
AstraZeneca PLC 0.92%
Unilever PLC 0.9%
AIA Group Ltd 0.88%
SAP SE 0.86%

EFA’s Top Holdings are Nestle SA, ASML Holding NV, Roche Holding AG, LVMH Moet Hennessy Louis Vuitton SE, and Novartis AG at 2.11%, 1.69%, 1.55%, 1.28%, and 1.19%.

Toyota Motor Corp (1.09%), AstraZeneca PLC (0.92%), and Unilever PLC (0.9%) have a slightly smaller but still significant weight. AIA Group Ltd and SAP SE are also represented in the EFA’s holdings at 0.88% and 0.86%.

XLF - Holdings

XLF Holdings Weight
Berkshire Hathaway Inc Class B 12.83%
JPMorgan Chase & Co 11.47%
Bank of America Corp 7.57%
Wells Fargo & Co 4.56%
Citigroup Inc 3.56%
Morgan Stanley 3.32%
Goldman Sachs Group Inc 3.15%
BlackRock Inc 3.02%
Charles Schwab Corp 2.66%
American Express Co 2.62%

XLF’s Top Holdings are Berkshire Hathaway Inc Class B, JPMorgan Chase & Co, Bank of America Corp, Wells Fargo & Co, and Citigroup Inc at 12.83%, 11.47%, 7.57%, 4.56%, and 3.56%.

Morgan Stanley (3.32%), Goldman Sachs Group Inc (3.15%), and BlackRock Inc (3.02%) have a slightly smaller but still significant weight. Charles Schwab Corp and American Express Co are also represented in the XLF’s holdings at 2.66% and 2.62%.

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Risk Analysis

EFA XLF
Mean Return 0.57 1.21
R-squared 96.78 73.26
Std. Deviation 15.01 18.86
Alpha 0.47 2.63
Beta 0.98 1.15
Sharpe Ratio 0.41 0.74
Treynor Ratio 5.33 11.25

The iShares MSCI EAFE ETF (EFA) has a Mean Return of 0.57 with a Alpha of 0.47 and a Standard Deviation of 15.01. Its Beta is 0.98 while EFA’s R-squared is 96.78. Furthermore, the fund has a Sharpe Ratio of 0.41 and a Treynor Ratio of 5.33.

The Financial Select Sector SPDR Fund (XLF) has a Mean Return of 1.21 with a Sharpe Ratio of 0.74 and a Standard Deviation of 18.86. Its Alpha is 2.63 while XLF’s Beta is 1.15. Furthermore, the fund has a Treynor Ratio of 11.25 and a R-squared of 73.26.

EFA’s Mean Return is 0.64 points lower than that of XLF and its R-squared is 23.52 points higher. With a Standard Deviation of 15.01, EFA is slightly less volatile than XLF. The Alpha and Beta of EFA are 2.16 points lower and 0.17 points lower than XLF’s Alpha and Beta.

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Performance

Annual Returns

EFA vs. XLF - Annual Returns

Year EFA XLF
2020 7.92% -1.68%
2019 21.94% 31.88%
2018 -13.83% -13.09%
2017 24.94% 22.03%
2016 0.96% 22.55%
2015 -0.9% -1.6%
2014 -5.04% 15.02%
2013 22.62% 35.37%
2012 17.22% 28.53%
2011 -12.18% -17.16%
2010 7.52% 11.97%

EFA had its best year in 2017 with an annual return of 24.94%. EFA’s worst year over the past decade yielded -13.83% and occurred in 2018. In most years the iShares MSCI EAFE ETF provided moderate returns such as in 2016, 2010, and 2020 where annual returns amounted to 0.96%, 7.52%, and 7.92% respectively.

The year 2013 was the strongest year for XLF, returning 35.37% on an annual basis. The poorest year for XLF in the last ten years was 2011, with a yield of -17.16%. Most years the Financial Select Sector SPDR Fund has given investors modest returns, such as in 2010, 2014, and 2017, when gains were 11.97%, 15.02%, and 22.03% respectively.

Portfolio Growth

EFA vs. XLF - Portfolio Growth

Fund Initial Balance Final Balance CAGR
EFA $10,000 $18,269 6.47%
XLF $10,000 $30,782 12.17%

A $10,000 investment in EFA would have resulted in a final balance of $18,269. This is a profit of $8,269 over 11 years and amounts to a compound annual growth rate (CAGR) of 6.47%.

With a $10,000 investment in XLF, the end total would have been $30,782. This equates to a $20,782 profit over 11 years and a compound annual growth rate (CAGR) of 12.17%.

EFA’s CAGR is 5.70 percentage points lower than that of XLF and as a result, would have yielded $12,513 less on a $10,000 investment. Thus, EFA performed worse than XLF by 5.70% annually.


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